Headlines

* US President Biden and congressional leaders hold productive meeting  

* Japan economy grows more than expected after technical recession

* Gold dips below $2000 after solid US retail sales and hawkish Fed remarks

* Asian shares tentative, US debt ceiling talks weigh on risk appetite

FX: USD rose and kept in bullish consolidation mode for what looks like a move higher. This morning’s move in the DXY to new highs appears to be breaking out. The DXY’s  100-day SMA is above at 102.88. The 2-year yield jumped higher through 4% to close at 4.07%. The 10-year yield popped up to 3.57% before closing in the green at 3.54%.

EUR slipped and closed below the 50-day SMA at 1.0886. If we lose support at 1.0844/47 then 1.08 looms. GBP finished lower at 1.2487 and is closing in on support around 1.2447. USD/JPY is up for a fifth day this morning and is close to the 200-day SMA at 137.04. The major is underpinned by yields differentials.  High beta currencies are lower today on disappointing Chinese data. AUD is facing headwinds from mixed wage data and after USD/CNH breached the psychological 7.0 level for the first time this year. AUD/USD has strong support above 0.66. USD/CAD remains just above the 200-day SMA at 1.3467.

Stocks: US equities fell as the blue-chip S&P 500 lost 0.64%. Near-term support sits at 4098/99. The Dow dropped 1.01%. It closed below its 50-day SMA for the first time since the end of March. The Nasdaq 100 edged up to new highs again, finishing +0.09%. Cyclical growth outperformed with mega caps like Alphabet and Amazon up 2% or more. This has been the trend since the middle of earnings season. The Vix remains below 20. Trading was overshadowed by the debt ceiling impasse. The US could default on its debt as early as next month if lawmakers fail to reach a compromise.

Asian stocks were mixed amid the cautious handover from Wall Street. Headlines were dominated by the Japan’s stocks. The Nikkei 225 is close to a post-bubble high and climbed above 30,000 for the first time since September 2021. Stronger-than-expected GDP data helped. The Hang Seng was lower in contained trade with few fresh catalysts after the disappointing activity data earlier in the week.

US equity futures are rangebound and modestly in the green.  European equity futures are pointing to a flat open. The cash markets closed unchanged yesterday.

Gold lost 1.36% and closed at $1988. Fedspeak remains hawkish discounting any imminent rate cuts. This has pushed the dollar higher, which has also been boosted by the debt ceiling issues. Next support is the 50-day SMA at $1981. Gold hasn’t closed below here since March 10.

Day Ahead – Debt ceiling impasse and more Fedspeak

The meeting between Biden and congressional leaders achieved no major breakthroughs. But it was said to be productive and has set the stage for further discussions. Republican speaker of the House McCarthy stated it would be possible to reach a deal by the end of the week. But he warned there was still a lot of work to do, and the two sides are still very far apart.

 There is little data on the calendar. Yesterday’s US retail sales showed no glaring concerns on the consumer side. It seems the pandemic savings haven’t all been spent and could last a while longer. The strong labour market is also helping. We get more Fed speakers today. They remain mixed with voters on the FOMC slightly more cautious. Other members on the committee still see further rate hikes.

Chart of the Day – USD/CNH busts through 7.00

China’s local economy has been slowing recently. This has been seen in PMIs, soft credit data and the lower-than-expected inflation readings. This increases the risk of policy easing through lower rates. It also means potentially continued weakness in the yuan in the coming months.

USD/CNH had been capped by the 7 barrier and the 200-day SMA just below this key mark. But buyers surged through this resistance zone yesterday which has seen intervention by the Chinese authorities previously. Indeed, the PBoC Governor noted it is no longer a “psychological level” suggesting no defence of the level. A strong close above the December high at 7.0155 is key for more upside.